"What Exactly is a Free Market?!"
MMost people agree that markets are great at making stuff. Hiking boots, bicycle helmets, electric cars and iPads—nearly all the products that make our lives safer, easier, and more fun are the result of market forces. And while it’s wonderful to have access to such amazing tools, even an innovation as revolutionary as the washing machine is still, on some level, just more stuff. If you’re at all skeptical about free markets, then it’s fair to ask if they can do more than fill up our stores and homes with toys. Can markets actually solve humanity's toughest problems?

It’s hard to imagine a tougher and more persistent human problem than hunger. For thousands of years, hunger was the norm for most of the people on the planet, and even the richest kings and sultans were vulnerable to famine.

But starting in the 1700s, everything changed thanks in part to one of the greatest innovations in human history—specialization. Specialization is the division of work into narrow, “specialized” niches. It’s the reason why you can put food on your table by cutting hair, or writing code for video games. And that’s the product of free markets.

WWithout specialization, everyone needs to grow their own food, sew their own clothes, and build their own homes. Once we begin to specialize, workers and entrepreneurs can focus on specific tasks, like growing wheat. Their expertise allows them to produce a surplus, which they trade with clothes makers and home builders. Pretty quickly, everyone becomes better off. And because the farmer needs the builder and vice versa, they are more likely to treat each other with tolerance and respect.

And as farmers specialized—one growing corn, another growing apples—they started to experiment with new tools and techniques: crop rotation, selective breeding, fertilization, and many more. Gradually, one innovation at a time, farmers managed to make their labor more efficient and more profitable.

From the time of the American Revolution to today, the per capita supply of calories in the West has gone up more than 70 percent. The picture is even more impressive when you zoom in on the poorest sections of society. Two-hundred years ago, the poorest 20% of individuals in England and France lacked the energy for sustained work. In other words, the poorest people—those who desperately needed opportunities —couldn’t work because they didn’t have enough to eat. That’s the very definition of a vicious circle.

Share of the World Population living in Absolute Poverty, 1820-2015
– by Max Roser

Share of the World Population living in Absolute Poverty, 1820-2015
– by Max Roser

Source: Bourguignon and Morrisson (2002) and World Bank (PovcalNet) (2015)

All incomes are adjusted for inflation over time and for price differences between countries (1985-PPP before 1970; 2011-PPP after 1970).

Of course, hunger is still a challenge for millions of people around the world, but the progress we have made in just a few hundred years is nothing short of astonishing. From 1800 to 2010 the price of wheat, humanity’s most ubiquitous staple food, fell more than 88%. During the same period, the share of the world’s population living in so-called “absolute poverty,” surviving in the shadow of starvation, has fallen from 94% to just 9.6%.